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FAIR VALUE

6 Months Ended

Jun. 30, 2022

Financial Instruments, Owned, at Fair Value [Abstract]

7. FAIR VALUE

We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of the amounts that we would realize upon disposition.

Fair Value Measurements on a Recurring Basis

The following table presents our financial instruments measured at fair value on a recurring basis:


											Total
(in thousands)		Level 1			Level 2			Level 3			Fair Value
As of June 30, 2022
Assets:
Derivative instruments		$	—		$	7,425		$	—		$	7,425
Total assets measured at fair value		$	—		$	7,425		$	—		$	7,425
Liabilities:
Derivative instruments		$	—		$	2,019		$	—		$	2,019
Total liabilities measured at fair value		$	—		$	2,019		$	—		$	2,019
As of December 31, 2021
Assets:
Derivative instruments		$	—		$	323		$	—		$	323
Total assets measured at fair value		$	—		$	323		$	—		$	323
Liabilities:
Derivative instruments		$	—		$	11,236		$	—		$	11,236
Total liabilities measured at fair value		$	—		$	11,236		$	—		$	11,236

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Derivative Instruments. The derivative instruments are interest rate swaps and interest rate caps whose fair value is estimated using market-standard valuation models. Such models involve using market-based observable inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our nonperformance risk and respective counterparty’s nonperformance risk in the fair value measurements, which we have concluded are not material to the valuation. Due to these derivative instruments being unique and not actively traded, the fair value is classified as Level 2. See Item 3 below for further discussion of our derivative instruments.

Nonrecurring Fair Value Measurements

As of June 30, 2022 and December 31, 2021, the fair values of cash and cash equivalents, restricted cash, tenant receivables, accounts payable and accrued expenses, and distributions payable approximate their carrying values because of the short-term nature of these instruments. The table below includes fair values for certain of our financial instruments for which it is practicable to estimate fair value. The carrying values and fair values of these financial instruments were as follows:


		As of June 30, 2022						As of December 31, 2021
		Carrying			Fair			Carrying			Fair
(in thousands)		Value (1)			Value			Value (1)			Value
Assets:
Debt-related investments		$	108,782		$	108,782		$	106,463		$	106,463
DST Program Loans			86,706			85,344			62,123			62,123
Liabilities:
Line of credit		$	383,000		$	383,000		$	256,000		$	256,000
Term loans			800,000			798,603			525,000			525,000
Mortgage notes			588,397			552,816			589,554			600,467

(1)	The carrying value reflects the principal amount outstanding.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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